Although the total wage bill grew by a lower-than-expected 7.3% y-y in 2024, household expenditure was contained, with debt service costs rising only 3.0% y-y and transport costs dropping by 0.3% y-y. This resulted in the funds available for retail and discretionary spending increasing by 8.8% y-y in 2024 (6.9% y-y excluding c. R40bn in Two-Pot pension withdrawals). Retail sales growth was limited at 5.6% y-y, implying increased consumer savings. This is the second consecutive year of prudent consumer behaviour.
Looking ahead, we expect job growth of 3.1% y-y and 5.0% y-y of wage increases, resulting in the wage bill growing by 8.1% y-y in 2025. Lower interest rates and restrained credit extensions could result in debt repayments dropping by 1.4% y-y, while transport costs could be flat in 2025. We think the second annual withdrawal from the Two-Pot system could be much lower than the inaugural drawdowns, and forecast R20bn in withdrawals in 2025. Electricity costs could rise considerably, given Eskom’s proposal to change the structure of tariffs. On our estimates, the Consumer Wallet (that is, the funds available for retail and discretionary spending) could increase by 9.6% y-y in 2025.
Our demographic analysis shows a decline in the market size for age segment 25-39 for both ladieswear and menswear over the next five years, which could weigh on the performance of apparel retailers. The target populations for kidswear, hardware, furniture and appliances show robust growth, though.
Our analysis of Stats SA’s employment data reveals a worrying trend. While employment has increased over the past year, this was mainly in the older age groups (35 and older). We find this to be a long-term trend, as younger workers’ (under 35) share of jobs dropped from 44.3% in 2008 to 34.1% in 2024. Retailers who target customers in these segments (e.g. fashion retailers) may find declining spending power in this customer base.